Tesla reported its first quarterly profit last week and has had a stellar run since. Consumer Reports gave it a 99/100 — the highest rating on record.
Last night, Morgan Stanley’s Adam Jonas wrote that the debate on Tesla had changed. “The debate has moved on from questions of viability to measuring the success and sustainable competitive advantage of the business, triggering a dramatic compression of the stock’s implied risk premium,” he wrote.
Morgan Stanley’s Jonas and his team have since raised its “15-year discounted cash flow (DCF) derived” price target on Tesla to $103, from $47. Jonas writes that this was driven by 4 key things:
- Model S – Model S. volume assumptions were increased by 40% from 2014 on, estimated to be 30,000 by 2015. This incorporates the impact of its lease-finance model. This according to Jonas adds $12 per share.
- Gen 3. – A 70% increase in the mass market Generation 3 vehicle. This “reflect[s] our view that the company will have the financial resources to offer the product through a substantially expanded network of sales and service locations.”This adds $17 per share to the price target.
- Regulatory credits – The inclusion of zero emission vehicle (ZEV) credits, greenhouse gases (GHG) credits, and others estimated at $225 million annually. This adds $15 per share to the price target.
- Exit multiple – The exit multiple is increased to 9. from 7x. This reflects a lower risk of default and better growth prospects and adds $12 per share to the price target.
This is a great visual breakdown of Morgan Stanley’s price target hike:
Jonas reiterates that this Tesla is valued on a 15-year DCF (future cash flow and discounts) and that its “valuation multiples do not begin to make sense until at least 2015.”
Tesla’s stock is up 62% since it reported earnings on May 8.